"24/7 Banking! Bank of England considers extending RTGS settlement hours, payment system evolution to take place by 2027"

The Bank of England is exploring extending the operating hours of the Real-Time Gross Settlement (RTGS) system as part of future payment system innovations. Following the release of a discussion paper in February 2024, the Bank of England has now published a response document, which will provide guidance for the direction of RTGS and its associated services such as the Clearing House Automated Payment System (CHAPS).

UK Supports 24/7 Payment Settlement System

Feedback emphasizes the potential benefits and challenges of extending the RTGS and CHAPS settlement times, supporting the Bank of England's goal to modernize the payment system to align with the increasingly 24/7 global market. Industry professionals recognize its advantages such as enhancing cross-border payments and improving liquidity management, but also stress that any extension should be phased in and require clear business cases to ensure cost-effectiveness and operational readiness.

Why Banks Need to Extend Settlement Times?

Benefits for Global Payments and Liquidity Management

Industry consensus suggests that extending RTGS and CHAPS settlement times would benefit the payment landscape, particularly improving cross-border transaction efficiencies in regions like APAC, EU, and the Americas. Extending times can also simplify liquidity management and foster payment innovations. For example, earlier settlement times can better synchronize transactions across different time zones, enhancing operational efficiency and reliability of international transactions.

Operational Challenges and Costs

Feedback highlights key cost factors of extending settlement times, including staffing and operational system upgrades. Respondents indicate that while extending times may increase costs for monitoring and processing transactions, cost savings could be achieved through automation and long-term efficiency gains.

Traditional Banks Moving Towards Near 24x7 Settlement

Industry Supports Phased Implementation

Most industry participants support gradually extending RTGS and CHAPS settlement times over the next few years to allow time for the necessary systems and processes to support new operational models. At least a two-year lead time is required for any extension, with some firms even requesting a three-year preparation period to ensure full readiness.

Waiting Until 2027

The Bank of England envisions initially extending settlement times to earlier opening hours, possibly starting at 1:30 am UK time, but no changes will be made before 2027. This aligns with the Bank of England's vision of nearing 24x7 settlement operations by the end of the century. Further analysis and consultations with stakeholders will determine the final timetable, with a consultation paper to be released in 2025.

Towards a Vision of Innovation in Currency and Payment Space

Strengthening the RTGS system to support longer operational hours is seen as a foundational step to support new technologies and payment methods, including wholesale central bank digital currencies (wCBDCs), systemic stablecoins, and potential digital currencies like digital pounds.

The Bank of England is collaborating with industry stakeholders to analyze and develop operational models, transition paths, and service support structures for extending settlement times. The goal is to balance providing an open innovation platform, maintaining the stability of central bank currencies, and ensuring these changes are feasible for banks and industry participants.